EXHIBIT 10.21


 


SECURITY AGREEMENT


 


This
Security Agreement is made this 28th day of December 2007, by Heron Lake BioEnergy,
LLC, a Minnesota limited liability company (the “Debtor” or “Borrower”), in
favor of Federated Rural Electric Association, a Minnesota cooperative
corporation (the “Secured Party”).


 


In
order to secure the payment of a Secured Promissory Note and loan of even date
herewith executed by the Debtor and payable to the order of the Security Party
(the “Note”), and each and every other debt, liability and obligation of every
type and description which Debtor may now or at any time hereafter owe to the
Secured Party under, pursuant to or arising out of the Note and any other
document, agreement or instrument relating to the acquisition of electric
equipment for the Heron Lake BioEnergy, LLC ethanol facility (the “Project”) in
Heron Lake, Minnesota (collectively referred to as the “Borrower Documents”)
(whether such debt, liability or obligation exists or is hereafter created or
incurred, whether it arises by operation of law or otherwise, or whether it is
or may be direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or sold, joint, several or
other joint and several)(said Note and all such other debts, liabilities and
obligations of the Debtor to the Secured Party herein are collectively referred
to as the “Secured Obligations”), Debtor hereby agrees to as follows:


 


1.                                       SECURITY INTEREST AND COLLATERAL.  In order to secure the payment and
performance of the Secured Obligations, Debtor hereby grants to Secured Party a
first priority and senior lien security position on such collateral as defined
in the original State of Minnesota Uniform Commercial Code Financing Statement
(“Collateral”).  Said Collateral shall
include the substation land, substation, all associated substation equipment,
and the distribution transformers within the facility as listed.  (See attached Exhibit A)


 


2.                                       REPRESENTATIONS WARRANTIES AND AGREEMENTS.  Debtor hereby represents and warrants to and
covenants with and agrees with Secured Party as follows:


 


A.                                   Debtor’s principal place of business will
continue to be located at 91246 390th Avenue (PO Box 198), Heron Lake, MN 56137.  Debtor’s executive offices are located at
91246 390th Avenue (PO Box 198), Heron Lake, MN 56137.  Debtor’s records concerning its accounts are
kept at such address.  During the
proceeding one year Debtor has not changed its name or operated or conducted
business under any trade name or “d/b/a” which is different from its corporate
name or other than Heron Lake BioEnergy, LLC. 
Debtor shall promptly notify Secured Party of any change in such name or
if it operates or conducts business under any trade name or “d/b/a” which is
different from such name.


 


B.                                     Debtor will:


 


(i)            promptly pay all taxes or other
governmental charges levied or assessed upon or against any Collateral or upon
or against the creation, perfection, or continuance of the security interest;


 





















 


(ii)           keep all Collateral free and clear of all security
interests, liens and encumbrances, except any Permitted encumbrances Interests
(agreed to in writing by Secured Party);


 


(iii)          at all reasonable times as provided by the Borrower
Documents, permit Secured Party or its representatives to examine or inspect
any Collateral, wherever located, and subject to the Borrower Documents, to
reasonably examine, inspect and copy (at Secured Party’s cost) Debtor’s books
and records pertaining to the Collateral and its business and financial
condition; provided, however, that the Secured Party shall be entitled to
provide any and all information received hereunder to any regulatory authority
requesting such information and/or to any prospective purchasers of or
participants in loans made hereunder (so long as Secured Party uses its best
efforts to ensure that such participant also treats such information as
confidential);


 


(iv)          from time to time execute such financing statements as
Secured Party may reasonably deem required to be filed in order to perfect its
security interest;


 


(v)           pay when due or reimburse Secured Party on demand for
all reasonable costs of collection of any of the Secured Obligations and all
other reasonable out-of-pocket expenses (including in each such case reasonable
attorney’s fees) incurred by Secured Party in connection with the creation,
perfection, satisfaction or enforcement of the security interest or the
continuance or enforcement of this Agreement or any or all of the Secured
Obligations;


 


(vi)          execute, deliver, and endorse any and all instruments,
documents, assignments, security agreements, or other agreements in writing
which Secured Party may at any time reasonably request in order to secure,
perfect, protect, or enforce Its security interest and Secured Party’s rights
under this agreement;


 


(vii)         not use or keep Collateral, or permit it to be used or
kept for any unlawful purpose or in violation of any federal, state or local
law, statute or ordinance; and


 


(viii)        not permit any tangible Collateral to become part of
or to be affixed to any real property without first assuring to the reasonable
satisfaction of Secured Party that its security interest will be prior and
senior to any lien then held or thereafter acquired by any mortgagee of such
real property or its assigns if (i) an “Event of Default” occurs under the
Borrower Documents of even date, or (Ii) the Debtor at any time fails to
perform or observe any agreement contained in this section “2.B.(viii)” and
such failure continues for a period of thirty (30) calendar days after Secured
Party gives Debtor written notice thereof (or, in the case of agreements 


 


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contained in clauses (ii) (viii) (ix) of
this Section “2.B.”, immediately upon occurrence of such failure, without
notice or lapse of time), then Secured Party may (but need not) perform or
observe such agreement on behalf and in the name, place and stead of Debtor
(or, at Secured Party’s option, in Secured Party’s own name) and may (but need
not) take any and all other actions which Secured Party may reasonably deem
necessary to cure or correct such failure (including, without limitation, the
payment of taxes, the satisfaction of security interest, liens and encumbrances
(other than Permitted Interest), the performance of obligations under contracts
or agreements with account debtors or other obligors, the procurement or
maintenance of insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs, transportation or
insurance); and except to the extent that the effect of such payment would be
to render any loan or forbearance of any money, usurious, or otherwise illegal
under any applicable law, Debtor shall thereupon pay Secured Party on demand
the amount of all reasonable monies expended and all reasonable costs and
expenses (including reasonable attorney’s fees) incurred by Secured Party in
the connection with or as a result of Secured Party’s performing or observing
such agreements or taking such actions, together with interest thereon from the
date expended or incurred by Secured Party at the rate provided for in the
Secured Promissory Note.  Unless
prohibited by applicable law and to facilitate the performance or observance by
Secured Party of such agreements of the Debtor, Debtor hereby irrevocably
appoints (which appointment is coupled with an interest) Secured Party, or its
delegate, as an attorney-In-fact of Debtor with the right (but not the duty)
from time to time to create, prepare, complete, execute, deliver, endorse or
file, in the name and on behalf of Debtor, any and all instruments, documents,
financing statements, applications for insurance, and other agreements and
writings required to be obtained, executed, delivered, or endorsed by Debtor
under this agreement.


 


3.                                       REMEDIES. 
Upon the occurrence of any event of default, the Secured Party may
exercise anyone or more of the following remedies:


 


A.                                   Exercise and enforce any and all rights
and remedies available after default to Secured Party under the Uniform
Commercial Code (“UCC”), or common law; and


 


B.                                     Exercise or enforce any and all other
rights or remedies available to the Secured Party by law or agreement against
the Collateral, against the Debtor, or against any other person or property.


 


If notice to Debtor of
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given at least ten (10) calendar days prior to the date of
the intended disposition or other action.


 


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4.                                       MISCELLANEOUS.


 


4.1.          This Agreement does not contemplate a
sale of accounts or chattel paper; and, as provided by law, Debtor is entitled
to any surplus and shall remain liable for any deficiency.


 


4.2.          This Agreement can be waived, modified, amended,
terminated or discharged, and the security interest can be released, only
explicitly in writing to be signed by a party or parties to be bound thereby;
and a waiver by the Secured Party shall be effective only in the specific
instance and only for purposes given.


 


4.3.          Mere delay in the failure to act shall not preclude
the exercise or enforcement in any of the Secured Party’s rights or remedies.


 


4.4.          All rights and remedies of the Secured Party shall be
accumulative and may be exercised singularly or concurrently, at Secured Party’s
option, and the exercise or enforcement of any such right or remedy shall
neither be a condition to nor bar the exercise or enforcement of any other.


 


4.5.          All notices to be given to the Debtor shall be deemed
sufficiently given (i) on the day of delivery if hand delivered, (Ii) on
the day after mailing it if sent overnight mail or (iii) three (3) days
after the postmarked day if mailed postage prepaid, certified or registered,
addressed to the Debtor at its last known address.


 


4.6.          Secured Party’s duty of care with respect to the
Collateral in its possession (as imposed by law) shall be deemed fulfilled if
Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case Collateral in the custody or possession of a bailee
or other third person, exercises reasonable care in the selection of the bailee
or other third person; and Secured Party need not otherwise preserve, protect,
insure or care for any Collateral.


 


4.7.          Secured Party shall not be Obligated to preserve any
rights Debtor may have against any other party, to realize in the Collateral at
all or in any particular manner or order, or to apply any cash proceeds of Collateral
in any particular order of application.


 


4.8.          This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their successors and assigns,
and shall take effect when signed by Debtor and delivered to Secured Party; and
Debtor waives notice of Secured Party’s acceptance hereof.


 


4.9.          Secured Party may execute this Agreement if
appropriate for purposes of filing, but the failure of Secured Party to execute
the Agreement shall not affect or impair the validity or effectiveness of this
Agreement.


 


4.10.        Except to the extent otherwise required by law, this
Agreement shall be governed by the laws of the State of Minnesota; and, unless
the context otherwise requires, all terms used herein which are defined in
Articles 1 and 9 of the Uniform 


 


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Commercial Code and
common law shall be construed according to such definitions.


 


4.11.        If any provision or application of this Agreement is
held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which can be
given effect; and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein and prescribed
hereby.


 


4.12.        All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Secured Obligations.


 


4.13.        This Security Agreement shall be construed in
accordance with the laws of the State of Minnesota.


 


IN
WITNESS WHEREOF, Debtor has executed and delivered to Secured Party this
Security Agreement as of the date and year first above written.


 


	
   

  	
  Heron Lake
  BioEnergy, LLC

  
	
   

  	
  (Debtor)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert J. Ferguson

  
	
   

  	
  Mr. Robert
  Ferguson

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  Federated Rural
  Electric Association

  
	
   

  	
  (Secured Party)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard G. Burud

  
	
   

  	
  Richard G. Burud

  
	
   

  	
  General Manager

  



 


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Federated
Rural Electric Association


 


Exhibit A
to Security Agreement


Exhibit A
Attachments


 


1.                                       Description


2.                                       Zieske Land Survey


3.                                       Federated Transformers


 

















 


DESCRIPTION


 


PART OF
THE SOUTHEAST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 16, TOWNSHIP 104
NORTH, RANGE 37 WEST IN WEIMER TOWNSHIP, JACKSON COUNTY, MINNESOTA, DESCRIBED
AS FOLLOWS:


 


COMMENCING
AT AN EXISTING IRON MONUMENT AT THE SOUTHEAST CORNER OF THE SOUTHWEST QUARTER
OF SAID SECTION 16; THENCE SOUTH 89 DEGREES 57 MINUTES 49 SECQNDS WEST,
BEARING BASED ON JACKSON COUNTY COORDINATE SYSTBM, ALONG THE SOUTH LINE OF SAID
SOUTHWEST QUARTER AND ALONG THE CENTERLINE OF COUNTY STATE AID HIGHWAY NUMBER
24, AS EXISTS, A DISTANCE OF 857.15 FEET, TO THE POINT OF BEGINNING; THENCE CONTINUING
SOUTH 89 DEGREES 57 MINUTES 49 SECONDS WEST, ALONG SAID SOUTH LINE AND SAID
CBNTERLINE, A DISTANCE OF100.00 FEET; THENCE NORTH 00 DEGREES 02 MINUTES 11
SECONDS WEST A DISTANCE OF 271.02 FEET; THENCE NORTH 89 DEGREES 57 MINUTES 49
SECONDS EAST, PARALLEL WITH THE SOUTH LINE OF SAID SOUTHWEST QUARTER, A DISTANCE
OF 100.00 FEET; THENCE SOUTH 00 DBGREES 02 MINUTES 11 SECONDS EAST A DISTANCE
OF 271.02 FEET, TO THE POINT OF BEGINNING.


 


THE
TRACT CONTAINS 0.62 ACRES AND IS SUBJECT TO EXISTING COUNTY HIGHWAY EASEMENT AND
OTHER EASEMENTS OF RECORD, IF ANY.


 


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Zieske
Land Survey


 





 


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Federated
Transformers


 


Heron Lake BioEnergy, LLC


Transformers


Prepared by: Jag 08.27.07


Updated: Jag 11.05.07


 


	
  Trans # Ins

  	
   

  	
  KVA

  	
   

  	
  Serial #

  	
   

  	
  Manufacturer

  	
   

  	
  Location

  
	
  1

  	
   

  	
  300

  	
   

  	
  06J144034

  	
   

  	
  Pauwels

  	
   

  	
  West of Maintenance

  
	
  2

  	
   

  	
  2000

  	
   

  	
  06J144042

  	
   

  	
  Pauwels

  	
   

  	
  North of Coal Power
  Shed

  
	
  3

  	
   

  	
  2000

  	
   

  	
  06J144046

  	
   

  	
  Pauwels

  	
   

  	
  North of Coal Power
  Shed

  
	
  4

  	
   

  	
  2000

  	
   

  	
  06J144045

  	
   

  	
  Pauwels

  	
   

  	
  North of Coal Power
  Shed

  
	
  5

  	
   

  	
  1500

  	
   

  	
  06J144044

  	
   

  	
  Pauwels

  	
   

  	
  East of Brewing Vats

  
	
  6

  	
   

  	
  2000

  	
   

  	
  06J144041

  	
   

  	
  Pauwels

  	
   

  	
  East of Process
  Building

  
	
  7

  	
   

  	
  2000

  	
   

  	
  06J144040

  	
   

  	
  Pauwels

  	
   

  	
  East of Process
  Building

  
	
  8

  	
   

  	
  1500

  	
   

  	
  06J144036

  	
   

  	
  Pauwels

  	
   

  	
  West of Grain Silos

  
	
  9

  	
   

  	
  1500

  	
   

  	
  06J144035

  	
   

  	
  Pauwels

  	
   

  	
  West of Grain Silos

  
	
  10

  	
   

  	
  1500

  	
   

  	
  06J144037

  	
   

  	
  Pauwels

  	
   

  	
  South of Wet Cake Pad

  
	
  11

  	
   

  	
  1500

  	
   

  	
  06J144038

  	
   

  	
  Pauwels

  	
   

  	
  South of Wet Cake Pad

  
	
  12

  	
   

  	
  2000

  	
   

  	
  06J144039

  	
   

  	
  Pauwels

  	
   

  	
  North of Pump House

  
	
  13

  	
   

  	
  7.5Mw

  	
   

  	
  20060000783

  	
   

  	
   

  	
   

  	
  Substation

  
	
  14

  	
   

  	
  7.5Mw

  	
   

  	
  20060000784

  	
   

  	
   

  	
   

  	
  Substation

  



 


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